Glenn Reynolds Says

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Wednesday, April 26, 2006

Windfall Profit Tax

I think this post by Alton was missed by most. It regards Oil profits and our very own little state of Virginia. Take time to read it. Great Job Alton!

There is talk of a Windfall Profit Tax for oil companies again. I remember the last one. I would hope that before we take that path we would address and fix the problems that arose last time. Remember? Domestic production went down...Dependence of foreign oil went up. Millions of dollars to fund the IRS to try unsuccessfully enforce this tax. Why did we repeal the tax in 1988? We better look long and hard at this. Many things sound good at first.

In August 1988 Congress agreed to repeal the tax. Few mourned its passing. "Time for the windfall tax to fall," declared its erstwhile champions at The New York Times. Events had overtaken the levy, as so often happens with narrow taxes designed to deal with transient phenomena. Did oil companies deserve to keep their windfall profits? "It was a resentful question when Americans waited two hours in gasoline lines and Saudi princes summered in Monaco," the Times recalled. "It seems almost quaint now." (LINK)

The thing about the 1980 WPT was it was more of an excise tax than a profit tax.

The tax was technically misnamed because it was in fact an excise tax, not a "profits" tax. The tax was imposed on the difference between the market price of oil and a government-determined base price. For example, a 70 percent tax was levied on the difference between the market price received by oil companies and the average base price of $12.81 per barrel. Independent producers, stripper wells and heavy oils were taxed at different rates. (LINK)

We better approach this with trepidation. I would want to see a lot of research and planning before this is imposed. Thinking this will lower the price at the pump anytime soon is a pipe dream at best. It is easy to say Damn those Oil Companies!!! I dont think raising taxes on them is the way to go. Any thoughts on this?